Tuesday, November 15, 2016

Makeup Industry as an Oligopoly 

On May 8 Nicolle Beiglarbeigi made a previous about the makeup industry being an oligopoly because there are only a few major makeup companies that make up this industry and the others are way smaller. L'Oréal S A is the leading firm in the global makeup market holding 25.8% of market share. L'Oréal divides into five sectors and there are 28 international brands. Their makeup sector alone made $4.616 million and consolidated salads were $22.98 billion. There are a few dominant firms with market power. There is brand loyalty, products are differentiated very well, firms are interdependent, the barriers to entering the market is not hard, and the industries hold up to 60% of the concentration ratio. Dominant firms are L'Oréal S A, Estée Lauder, Revlon, Inc. and Procter, and Gamble company. They hold 72.6% of the market share. Products are differentiated depending on if they are high end or drugstore and what brand it is. The nature of the industry a causes high elasticity demand. All products are substituted. For example, Nars radiant creamy concealer is $29 at Sephora. Maybelline Fit Me concealer is $6.99 at Ulta. High end brands have created a reputation that has caused them to have a high price to match their credibility. Consumers that are brand loyal don't find substitutes for their products. Usually the higher the brand loyalty the less likely a consumer will leave because of a price raise because they feel like there are no substitutes. Brand loyalty creates inelacticity. 


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